Local authorities face a continued challenge to deliver public services under a range of pressures; short-term budget short-falls, medium-term economic uncertainty and long-term demographic shifts.

In this context the most proactive local government leaders are absolutely open to innovation.

Driving economic growth must become a higher priority for local authorities as further cost cutting becomes increasingly difficult. To succeed in this critical role, local government leaders will benefit both from exploiting the government’s appetite for empowering them to make the key decisions about progress in their region, and from strengthening their relationships with the private sector in their area.

City Deals, for example, offer local government a platform for reinvention. Areas with leaders who challenge themselves to find, and build on, their region’s own unique competitive advantage when negotiating these deals stand to secure the greatest benefit. The most successful examples of city reinventions are those where the city leadership takes a path of differentiation. Bilbao’s transformation from a city in decline to a tourism mecca is a terrific example.

And if cities are the engine of economic growth, infrastructure development is the fuel. Within the City Deal model local authorities are rightly keen to leverage new funding and investment approaches. It’s critical they understand the need to first broker them, and to embrace the necessary combination of self-help and economic prioritisation. A focus on wider economic benefits, such as increased tax revenue, new jobs and enhanced GDP, as well as the value of improved connectivity will pave the way for achieving innovative deals with the Treasury.

Improving the way in which it partners with business is also critical to maximising the impact of local government as an economic force in this context of devolved decision making and funding.

Both parties stand to benefit from cooperative working towards local prosperity. The increasing kit of tools with which authorities can support businesses, spanning financial, regulatory, property and infrastructure matters, is welcome- while the most business-friendly authorities should in turn benefit from retaining and attracting investment from employers and wealth creators on the back of a reputation for being a good base for business.

A valuable initial step is for authorities to have a strategy for economic growth and to clearly communicate it to businesses in the UK and abroad. Not all do so, and few of those with such a plan test it with the private sector. I’d go so far as to suggest that authorities should be courting business as the primary drivers of prosperity.

Local Enterprise Partnerships are a great platform for strengthening the bonds between these two parts of any local and regional economy and facilitating some skills transfer, though I’m not convinced they are currently fulfilling their potential.
Turning to innovation in relation to new sources of investment, revenue and service delivery; alternative delivery models warrant consideration.

To this end we are working with a number of authorities as they assess the opportunities and risks posed by funding and providing services through spun-out enterprises and social impact bonds.

The potential benefit of spinning-out local services is to be embraced. The local authority that spins out services can create a new revenue stream, while those that buy services from the new spin-out stand to secure a better deal for the tax payer by gaining access to higher performing services at lower costs.

Successful spin-outs must relate to services that are particularly competitive, to incentivise other local authorities to replace their own. They have been in the fields of adult social care, leisure and education - areas where the main component is staff, not assets.

A range of local authority services could benefit from being spun-out into different vehicles, such as joint ventures, companies owned by a local authority or those that are privately held – not always mutuals! Generally, the spinning-out process is similar and we advocate a two-stage approach where an interim ‘incubator vehicle’ is used; run on commercial terms, but under the protective umbrella of the local authority. This maximises the chances of achieving a fully independent NewCo, whose business model has been tested and amended. It helps to ensure the spin-out is healthy and well-formed before it goes to market for funding, in turn maximising the up-side to the local authority.

Social Impact Bonds meanwhile have a role to play in trialling innovative ways of delivering local public services. Through a 'payment by results' formula a return is provided to the investor, while the ‘interventions’ may be adopted as status quo policy measures.

Preventative action is at their heart, for instance stopping young ex-prisoners from going down a lifetime path of causing harm to themselves, their families and communities- thereby saving the state significant sums and improving collective well-being.

Most have so far focused on social services but the principle could be extended to health. For example, a Health Impact Bond for helping people with diabetes to manage their condition, or to support people who drink too much or are overweight to change their lifestyles and so improve their health prognoses.

There are a series of feasibility criteria but I foresee local government deploying increasing numbers of social impact bond projects that can meet these- being innovative and demonstrably different.

Those leading local government must remain ruthlessly committed to making strides in these areas in order to serve their public and make progress towards being sustainable in an environment that is certain to get even tougher as next month’s spending review looms large.